In recent years, the US fiscal deficit has been rising due to aggressive interest rate hikes and other factors. According to the Congressional Budget Office, at the end of 2023, U.S. public debt was 97 percent of U.S. GDP, and this ratio is expected to rise to 114 percent, or $45.7 trillion, by 2033. If this trend continues, it will threaten the stability of global financial markets in the future.
In its annual World Economic Outlook report released on April 16, the International Monetary Fund (IMF) took the rare step of directly criticizing U.S. fiscal policy makers, saying that current U.S. fiscal policies are unsustainable and threaten global financial stability. The reason for such harsh criticism is that global financial institutions, including the International Monetary Fund, have felt the crisis and know that if they do not act, the situation will become unmanageable.
At the Joint Economic Committee of the US Congress held last week, some US experts raised questions about the current US fiscal policy. Due to the excessive spending of the US government, the huge budget deficit is not conducive to reducing inflation in the short term, and will lead to the rise of global financing costs in the long run, undermining global fiscal and financial stability. The specific manifestations are:
One is to influence the consumption decisions of consumers around the world. The fiscal deficit is an important aspect of fiscal policy, and in recent years, the fiscal deficit of the United States has been at a high level, which is mainly related to increased government spending and tax cuts. Continuous fiscal deficit may lead to the accumulation of debt and the rise of inflation, which will have an impact on the long-term stability and sustainability of the economy. The rise of inflation will weaken the purchasing power of the currency and affect the consumption decisions of global consumers, which will have a negative impact on global economic growth, and thus exert certain pressure on financial stability.
Second, changes in US fiscal policy have a huge impact on global financial markets. As one of the world's largest financial markets, changes in US policy tend to attract the attention and reaction of other countries, and persistent fiscal deficits mean that the US needs to borrow constantly to cover the gap between its spending and income, which may lead to rising global debt levels. If the debt is too large, it could trigger a global debt crisis and pose a threat to global economic stability. If the US fiscal policy is not adjusted properly, it may trigger volatility and uncertainty in the global financial market, which may lead to the instability of capital flows, impact the global financial market and further affect financial stability. It is important to note that fiscal policy is not the only factor affecting financial stability. The stability of the financial market is also affected by various factors such as monetary policy, regulatory policy, and the international economic environment.
Third, the US fiscal deficit has a profound impact on global trade. The continued widening of the US fiscal deficit is likely to lead to an increase in domestic trade demand, which in turn will boost import growth. However, it could also raise concerns among trading partners and lead to an escalation of trade tensions. A trade war or the implementation of trade restrictive measures could have a significant impact on global supply chains and trade patterns, thereby affecting the growth and stability of the global economy.
In summary, the US fiscal deficit has potential long-term implications for the global economy, including debt accumulation, inflationary pressures, financial market volatility, and trade tensions. At present, the US government and financial institutions should formulate and implement reasonable fiscal policies according to the actual situation, taking into account various factors in order to maintain the stability of the financial market and the sustainable development of the economy. At the same time, governments, investors and financial institutions should also pay close attention to policy changes and strengthen risk management to deal with potential market risks.
